‘We’ll Fight This To The Death’: The Vicious Capitol Hill Battle Between Banks and Credit Unions

As reported by Zach Carter and Ryan Grimm of the HuffingtonPost

 

WASHINGTON — In early February, Alabama Republican Spencer Bachus called for a meeting between two of the most quietly influential interest groups in the nation’s capital: credit unions and community banks.

Bachus, chairman of the powerful House Financial Services Committee, was looking to ensure the passage of a slew of federal favors benefiting both sides. All the lobbyists had to do was show up at a meeting and figure out how to work together.

It was too much to ask.

The Credit Union National Association and the Independent Community Bankers Association immediately agreed to the sit-down, but as the meeting approached the community bankers abruptly cancelled the event, according to lobbyists and congressional staffers familiar with the plans.

“There was supposed to be a couple of joint meetings with different congressional offices and with the leadership of Financial Services. And the banks decided that we had too many bills in play and they didn’t want to meet with us,” says Linda Armyn, a senior vice president for Bethpage Federal Credit Union.

It’s no small matter to cancel on a committee chairman. ICBA had performed the Capitol Hill equivalent of cussing out the boss at an office Christmas party. Still, the group has no regrets.

“There won’t be any meetings. There won’t be any compromise. There won’t be any deals. There won’t be any discussions,” says ICBA chief economist Paul Merski.

To most folks, community banks and credit unions are indistinguishable. Both are often viewed as good-guy alternatives to Wall Street banks, eschewing the too-big-to-fail crowd’s phantom, subprime profits in favor of safe, consumer-friendly products. After the 2008 financial crash, that strategy allowed them to reap financial rewards and reputational halos. The “Move Your Money” movement and Bank Transfer Day shifted billions of dollars worth of business from Wall Street to these small lenders.

But community banks and credit unions each operate under different government charters and regulatory regimes. They compete for the same good-guy customer base, and are openly hostile  with each other on Capitol Hill. Their mutual animosity is frequently unmoored from profit margins and bottom lines, a passionate conflict that at times seems like a Washington version of the Hatfields and McCoys.

“The credit unions have become the skunk at the garden party,” Merski says.

“The hypocrisy of the bank lobby appears to have no end,” Credit Union National Association (CUNA) CEO O. William Cheney said during a November hearing.

But while the dispute between the two groups goes back decades, their most recent clash serves as a window into the way American government works — or doesn’t work — in the 21st century. Legislative scuffles between entrenched interest groups occasionally gather enough momentum to attract public attention. Last year’s blowout over debit card swipe fees hijacked the Senate schedule for nearly six months, and the Stop Online Piracy Act sparked furious online protests.

Most of the time, the special interest stranglehold over Congress is exercised relatively quietly, in small-bore negotiations that never really get off the ground. Even if the bills go nowhere, they present lucrative fundraising opportunities for lawmakers, while devouring the time and attention that elected officials could be using to attend to the public good — say, solving the jobs crisis, ending homelessness or improving the standard of living for the one in four American children who currently live in poverty.

Instead, lawmakers expend tremendous amounts of energy trying to bridge emotional divides between favored interest groups that are accustomed to getting their way and have little interest in compromise — like, for example, credit unions and community banks.

Few fight harder in Washington than your cuddly local lenders.

“People always say it’s Wall Street, but the big banks aren’t the most potent lobbyists, because everybody hates them,” says Rep. Barney Frank (D-Mass.). “It’s the credit unions and the community banks because of their grassroots networks.”

A big bank like Citigroup appears to have oceans of lobbying clout that a small community bank lacks. But every congressional district has a community bank and a local credit union. As united forces, the ICBA and CUNA can (sometimes) defeat even their Wall Street competitors on the Hill.

This week, they will flex that muscle. CUNA expects 4,000 members of the credit union community to fly in to Washington for the group’s annual lobbying convention — including at least one from every congressional district.

Like the credit unions, community banks will be making their annual descent on Capitol Hill later this year. Both groups have profitable requests pending in Congress.

The Communities First Act, introduced in April 2011, reads like ICBA’s wish-list for the entire year. During a November hearing on the bill, Georgetown University Law School professor Adam Levitin criticized the bill as a set of unearned giveaways for small financial firms — tax cuts, accounting gimmicks to hide losses, weaker capital requirements and even immunity from some forms of scrutiny by the Securities and Exchange Commission. But whatever its impact on communities, the bill would undoubtedly help banks pad their profits.

“It does nothing for communities,” Levitin said, calling the bill “narrow, special-interest pleading.”

Credit unions, meanwhile, are seeking legislation that would allow them to expand their business lending operations. Credit unions are currently barred from issuing business loans in excess of 12.25 percent of their total assets, an arbitrary rule that banks were able to slip into a 1998 law over the objections of both credit unions and President Bill Clinton’s administration.

Over the past year, credit union lobbyists have amassed 121 co-sponsors — 46 Republicans and 75 Democrats — for the Small Business Lending Enhancement Act, a bill that would raise that business lending cap to 27 percent. Credit unions argue that allowing them to make more business loans will help small firms hire, claiming the bill will create 140,000 jobs.

Community banks and credit unions need each other. Neither the Communities First Act nor the Small Business Lending Enhancement Act is likely to pass on its own, prompting Rep. Bachus’ attempt to combine them. (Bachus’ office did not return requests for comment). The only trouble? The credit unions and community banks have been at each other’s throat for decades.

“It’s a very visceral reaction they have,” says Ryan Donovan, a top CUNA lobbyist, referring to community bankers. “The ICBA would rather have their entire legislative agenda burned than let our small bill pass.”

On the bill that would lift the lending cap on credit unions, ICBA’s Merski says,”We’ll fight this to the death because of the fundamental philosophical unfairness. It’s almost un-American, really.”

Banks have little to lose from the credit union bill, and large potential profits to gain from their own legislation. Credit unions do very little business lending. For the most part, they stick to simple, standardized consumer products like checking accounts, mortgages and credit cards. Credit unions are generally small, even compared to community banks, and account for just 1 percent of the commercial lending market nationwide, according to CUNA, with an average loan amount of only $220,000.

“We’re not talking shopping malls,” explains CUNA senior vice president for communications Mark Wolff. “We’re talking landscaping and bakeries.”

Even community banks that compete head-to-head with specific credit unions simply will not lose very much if the credit union bill passes. The credit union group only pegs the gains from their legislation at 140,000 jobs — a drop in the bucket relative to the jobs crisis. Yet the legislative arm-wrestling continues.

“If you look at the marketplace, the banks have 95 percent of the market share. There isn’t a whole lot of data that supports we’re taking their business,” says Armyn of the Bethpage Federal Credit Union. “I mean, we’re taking a piece of their business, but if you look at it on the grand scale, they still have 95 percent of the market share.”

But the battle isn’t really over balance sheets. It’s over those “philosophical” differences Merski cites. Talking to members of both groups, bankers essentially think credit unions are tax cheats, while credit unionists see bankers as greed-mongers.

Credit unions are nonprofits owned by their customers, a unique status among financial institutions which allows them to be exempt from income taxes. But a credit union charter comes with major drawbacks — they can’t pay dividends to shareholders, since they don’t have any shareholders, nor can their executives enjoy wild paydays in the form of stock options. They also only have one option for growth: profit. Banks can take on debt or issue stock to capitalize on profit opportunities, but credit unions have nothing but year-end earnings to draw on.

Bank executives do enjoy higher paydays. Among credit unions with at least $100 million in assets, the median CEO pay comes out to $211,558, according to CUNA. According to data compiled by SNL Financial, publicly traded banks with less than $10 billion in assets (a common threshold in regulation and legislation to define a “community bank”) pay out  median CEO compensation of $385,577.

As with most CEO pay in the financial industry, the bigger the bank, the better the potential payday, but community banks with less than $500 million in assets still paid a median of $248,437 — about 15 percent better than the median for all credit unions over $100 million in assets, according to the SNL Financial data. The largest credit union is Navy Federal, with $46 billion in assets.

But both sides use such relative metrics to criticize the other.

“They don’t pay taxes!” says ICBA’s Merski.

“They don’t get that we really are a different model,” counters CUNA’s Wolff.

Both sectors, of course, have always been free to change their charters whenever they wish. Credit unions file to become banks all the time, and there is no law barring banks from adopting a credit union model.

This year’s skirmish between community banks and credit unions will almost certainly dwindle into obscurity, a common fate for special interest legislation. Next year the two groups will undoubtedly concoct new slates of legislative demands, as is the nature of lobbying. But the public has still paid the opportunity cost for the lobbying push.

The dispute between credit unions and community banks is one of an endless array of Washington feuds that tend to not connect with the broader public interest. Even if the two groups had been able to put aside their differences and move their legislation forward, the tangible benefits for everyday Americans would have likely been minor. It doesn’t make much difference for most businesses whether they get their loan from a small bank or a credit union, so long as they get their loan. And the benefits that ICBA was seeking amount to a set of unhelpful deregulation.

Even if the uncounted hours of attention that were devoted to introducing the bills, garnering co-sponsors, holding hearings and briefing lawmakers had borne fruit, the public would still have been left out of the equation. Similar disputes take place every year between dozens of special interests, on every committee in Congress. And, in this case, the special interests groups themselves say the fuss has largely proved to be just that.

“We all just want to move forward and grow,” says Armyn, the Bethpage Federal Credit Union executive, frustrated with the political gridlock. “To me, it’s just silly.”

Wall Street Is Already Occupied

by Jesse Eisinger ProPublica,  Nov. 30, 2011, 12:12 p.m.

Note: The Trade is not subject to our Creative Commons license.

Last week, I had a conversation with a man who runs his own trading firm. In the process of fuming about competition from Goldman Sachs, he said with resignation and exasperation: “The fact that they were bailed out and can borrow for free — It’s pretty sickening.”

Though the sentiment is commonplace these days, I later found myself thinking about his outrage. Here was someone who is in the thick of the business, trading every day, and he is being sickened by the inequities and corruption on Wall Street and utterly persuaded that nothing had changed in the years since the financial crisis of 2008.

Then I realized something odd: I have conversations like this as a matter of routine. I can’t go a week without speaking to a hedge fund manager or analyst or even a banker who registers somewhere on the Wall Street Derangement Scale.

That should be a great relief: Some of them are just like us! Just because you are deranged doesn’t mean you are irrational, after all. Wall Street is already occupied — from within.

The insiders have a critique similar to that of the outsiders. The financial industry has strayed far from being an intermediary between companies that want to raise capital so they can sell people things they want. Instead, it is a machine to enrich itself, fleecing customers and exacerbating inequality. When it goes off the rails, it impoverishes the rest of us. When the crises come, as they inevitably do, banks hold the economy hostage, warning that they will shoot us in the head if we don’t bail them out.

And I won’t pretend this is a widespread view in finance — or even a large minority. You don’t hear this from the executives running the big Wall Street firms; you don’t hear it from the average trader or investment banker. From them, we get self-pity. For every one of the secret Occupy Wall Street sympathizers, there are probably 15 others like Kenneth G. Langone, who, like downtrodden people before him, is trying to reclaim and embrace a pejorative [1], “fat cat.”

The critics are more often found on the periphery, running hedge funds or working at independent research shops. They are retired, either voluntarily or not. They are low-level executives who haven’t made scrambling up the corporate hierarchy their sole ambition in life. Perhaps their independent status removes the intellectual handcuffs that come with ungodly bonuses. Or perhaps they are able to see Big Money’s flaws because they have to compete with the bigger banks for dollars.

Are these “Wall Streeters”? To civilians, they work on the Street. Bankers at the bulge-bracket firms wouldn’t think they are. But that doesn’t mean they don’t count. They know the financial business intimately.

Sadly, almost none of these closeted occupier-sympathizers go public. But Mike Mayo, a bank analyst with the brokerage firm CLSA, which is majority owned by the French bank Crédit Agricole, has done just that. In his book “Exile on Wall Street [2]” (Wiley), Mr. Mayo offers an unvarnished account of the punishments he experienced after denouncing bank excesses. Talking to him, it’s hard to tell you aren’t interviewing Michael Moore.

Mr. Mayo is particularly outraged over compensation for bank executives. Excessive compensation “sends a signal that you take what you get and take it however you can,” he told me. “That sends another signal to outsiders that the system is rigged. I truly wish the protestors didn’t have a leg to stand on, but the unfortunate truth is that they do.”

I asked Richard Kramer, who used to work as a technology analyst at Goldman Sachs until he got fed up with how it did business and now runs his own firm, Arete Research, what was going wrong. He sees it as part of the business model.

“There have been repeated fines and malfeasance at literally all the investment banks, but it doesn’t seem to affect their behavior much,” he said. “So I have to conclude it is part of strategy as simple cost/benefit analysis, that fines and legal costs are a small price to pay for the profits.”

Last week, in a Bloomberg Television event, both Laurence D. Fink, the chairman and chief executive of the mega-money management firm BlackRock, and Bill Gross, the legendary bond investor, evinced some sympathy for the Occupy Wall Street movement [3].

Over the last several decades, “money and finance have dominated at the expense of labor and Main Street, and so how can one not sympathize with their predicament?” Mr. Gross said, speaking of the 99 percent. “To not have sympathy with Main Street as opposed to Wall Street is to have blinders.”

It’s progress that these sentiments now come regularly from people who work in finance. This is an unheralded triumph of the Occupy Wall Street movement. It’s also an opportunity, to reach out to make common cause with native informants.

It’s also a failure. One notable absence in this crisis and its aftermath was a great statesman from the financial industry who would publicly embrace reform that mattered. Instead, mere months after the trillions had flowed from taxpayers and the Federal Reserve, they were back defending their prerogatives and fighting any regulations or changes to their business.

Perhaps a major reason why so few in this secret confederacy speak out is that they are as flummoxed about practical solutions as the rest of us. They don’t know where to begin.

Over the next year, maybe that will change. Things are going to be tough on Wall Street. Bonuses will be down. Layoffs are coming. Europe seems on the brink of another financial crisis. Maybe from that wreckage, a leader will emerge.

Tim Geithner Opposes Nominating Elizabeth Warren To Lead New Consumer Agency

As reported in Huffington Post

Treasury Secretary Timothy Geithner has expressed opposition to the possible nomination of Elizabeth Warren to head the Consumer Financial Protection Bureau, according to a source with knowledge of Geithner’s views.

The financial reform bill passed by the Senate on Thursday mandates the creation of a new federal entity charged with protecting consumers from predatory lenders.

But if Geithner has his way, the most prominent advocate for creating the agency may not be picked to lead it.

Warren, a professor at Harvard Law School whose 2007 journal article advocating the creation of such an agency inspired policymakers to enact it into law, has rocketed to prominence since the onset of the financial crisis as one of the leading reform advocates fighting on behalf of American taxpayers.

Warren has been an aggressive proponent for the bureau in public and behind the scenes, working regularly with President Barack Obama’s top advisers and the Democratic leadership in Congress. Since 2008, she has overseen the Congressional Oversight Panel, a bailout watchdog created to keep tabs on how two administrations spent hundreds of billions of taxpayer dollars to bail out Wall Street while struggling to keep distressed homeowners out of foreclosure and small businesses from collapsing.

Yet while her work on behalf of a federal unit designed solely to protect borrowers from abusive lenders has been embraced by the administration, Warren’s role as a bailout watchdog led to strained relations with the agency her panel has taken to task with brutal reports every month since Obama took office: Geithner’s Treasury Department.

It’s no secret the watchdog and the Treasury Secretary have had a tenuous relationship. Geithner’s critics have enjoyed watching Warren question him during his four appearances before her panel. Her tough, probing questions on the Wall Street bailout and his role in it — often delivered with a smile — are featured on YouTube. One video is headlined “Elizabeth Warren Makes Timmy Geithner Squirm.”

While her grilling of Geithner in September, over what members of Congress have called the “backdoor bailout” of Wall Street through AIG, inspired the “squirm” video, just last month Warren pressed Geithner on the administration’s lackluster foreclosure-prevention plan, Making Home Affordable. Criticizing him for Treasury’s failure to keep families in their homes, she questioned Treasury’s commitment to homeowners.

Warren’s persistent oversight is part of the reason for Geithner’s opposition, according to the source.

In addition, her increasing public profile could make it difficult for Geithner, who will oversee the unit until it’s transferred to the Federal Reserve. His role would involve trying to balance her advocacy on behalf of borrowers with the demands of the nation’s major financial institutions, his traditional constituency.

Geithner’s objections to Warren taking over that role also involve her views on Wall Street, sources say. The longtime professor believes the nation’s megabanks are Too Big To Fail and have been among the biggest abusive lenders in the country. Her toughness on giant banks is said to be a longtime source of tension with Geithner.

Obama’s top economic adviser, Lawrence Summers, is also said to have a strained relationship with Warren, though his stance on her nomination is not known.

Democrats in Congress have been among her most enthusiastic supporters. House Financial Services Chairman Barney Frank is one of many influential members who hope she’ll get the nod.

And while labor and consumer groups often butted heads with Geithner on various aspects of the financial reform legislation, they have lauded his support for strong consumer protections. Warren, however, has been referred to as a “rock star” among consumer advocates. Many have told HuffPost they’re hoping Obama picks her to head the new bureau.

Geithner’s opposition could have political implications for a White House determined to prove it’s gotten tough on Wall Street. Since March, Obama has devoted four of his weekly Saturday addresses to highlight and promote the consumer agency.

In March 2009, in response to a question during a town hall event in Southern California about the bailout for Wall Street firms and whether Obama supported tougher consumer protections on credit cards, Obama promoted Warren’s academic work:

“The truth of the matter is that the banking industry has used credit cards and pushed credit cards on consumers in ways that have been very damaging,” Obama said according to a transcript. “There’s a woman named Elizabeth Warren who’s a professor at Harvard who did a great deal of study around this. And she made a simple point. You know, if you bought a toaster, and the toaster blew up in your face, there would be a law, a consumer safety law, that would protect you from buying that toaster. But if you get a credit card that blows up in your face, that starts off at zero-percent interest, and once they kind of suck in the — buying a bunch of stuff and suddenly it’s 29 percent; and if you’re late two days, suddenly, you know, you just paid another $30, and all kinds of fine print that a lot of folks didn’t understand — well, somehow that’s okay.

“I think generally having some consumer safety, some consumer protection around credit cards, is important,” Obama added.

Three months later, the administration released its blueprint for how it wanted to fix the nation’s broken financial system. Warren’s idea for a consumer agency was a heavily-promoted part of it.

Warren, a Treasury Department spokesman and a White House spokesperson all declined to comment for this article.